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Question
‘Financial statements are prepared based on past data’. Explain how this is a limitation.
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Solution
The nature of the financial statement is historical. Past cannot be the index of the future and cannot be cent percent basis for future estimation, forecasting, budgeting, and planning.
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RELATED QUESTIONS
Financial Statements are prepared following the constituent accounting concepts principles procedures and also the legal environment in which the business organisation operate. These statements are the source of information on the basis of which conclusions are drawn about the profitability and financial position of a company so that their users can easily understand and use them in their economic decisions in a meaningful way.
From the above statements identify any two values that a company should observe while preparing its financial statements. Also, State under which major headings and sub-headings the following items will be presented in the Balance Sheet of a company as per Schedule III of the Companies Act 2013
(1) Capital Reserve
(2) Calls-in-Advance
(3) Loose Tools
(4) Bank overdraft
Long Answer Question
Explain the process of preparing income statement and balance sheet.
Prepare a balance sheet of Black Swan Ltd., as at March 31, 2017 form the following information:
| General Reserve | : | 3,000 |
| 10% Debentures | : | 3,000 |
| Statement of Profit & Loss | : | 1,200 |
| Depreciation on fixed assets | : | 700 |
| Gross Block | : | 9,000 |
| Current Liabilities | : | 2,500 |
| Preliminary Expenses | : | 300 |
| 6% Preference Share Capital | : | 5,000 |
| Cash & Cash Equivalents | : | 6,100 |
Under which heads the following items are classified or shown on the Assets part of the Balance Sheet of a copany: (i) Loose Tools; (ii) Bills Receivable; (iii) Sundry Debtors: and (iv) Advances Recoverable in Cash?
Expenses for a business for the first year were ₹ 80,000. In the second year, it was increased to ₹ 88,000. What is the trend percentage in the second year?
Bank overdraft is shown in the balance sheet under the ______.
Consider the following statements.
Statement 1 - "Facts and figures presented in financial statements are based on personal judgements"
Statement 2 - "Facts and figures presented in financial statements are not at all based on personal judgements"
What are the items shown under the heading 'Miscellaneous expenditure?'
Name the expenses that are incurred in connection with the formation of a company?
As per Schedule III, Part I of the Companies Act, 2013 'calls-in-arrears' will be presented under which of the following head/sub-head, in the Balance Sheet of a company?
